SYDNEY/WELLINGTON: The Australian and New Zealand dollars held handy gains versus their US counterpart on Monday, supported by a squeeze in short positions after a raft of better data out of China.
Also supporting the Antipodean currencies was a slide in the euro after Der Spiegel reported the Bundesbank was warning that Greece would need more financial assistance by early next year.
The euro has lost 1.2 percent against the Aussie since Friday to last trade at A$1.4487 with technicals suggesting further downside. The common currency has slipped more than 5 cents in a week, having touched a three-year peak near A$1.5000 last Monday.
Likewise, the euro skidded to NZ$1.6559 against the New Zealand dollar in a sharp reversal from a two-year peak of NZ$1.7226.
Against the US dollar, the Aussie held firm at $0.9200, having bounced from a three-year low of $0.8848 set last Monday. Data last week showed Australia's exports to China jumped to a near record high in July.
The figure helped propel the Aussie 3.2 percent higher on the week, the largest gain in more than 18 months. The Aussie is very sensitive to news out of China, its biggest single customer. Resistance for the Aussie is seen at $0.9240, with support at $0.9135.
Traders suspect, however, that the bounce had more to do with how short the market had been rather than an improvement in fundamentals in Australia.
"There was not a huge amount of reasons to be buying the Aussie last week," said Michael Turner, a strategist at RBC Capital Markets.
"It's all about positioning. The Aussie was waiting for a squeeze higher, having been relentlessly sold off from $1.0600."
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The Aussie bounce confounded some analysts given the Reserve Bank of Australia (RBA) had trimmed its near-term outlook for economic growth.
Yet, the lack of forward guidance on whether the central bank will ease again, following last week's cut in the main policy rate to a record low 2.5 percent, led the market to slightly lower the chance on another move.
Swaps and debt futures <0#YIB:> now give a 13 percent chance of a cut in September and are fully pricing a move by early next year.
The New Zealand dollar was up at $0.8040, not far from a 10-day high of $0.8056 touched on Friday. The kiwi managed to shrug off weakness triggered by dairy giant Fonterra's contaminated products scare last week.
"Signs of improved global growth should provide support to the commodity currencies in general. The New Zealand dollar should also find support from local data released this week highlighting the strength of the domestic recovery," said ASB analysts in a note.
Support was seen at $0.8000, and resistance initially at $0.8055, and then $0.8080.
Local industry data showed house prices eased a shade, but the number of sales perked up in July, while food prices rose 0.5 percent on June.
Key data this week is second quarter retail sales on Wednesday, with expectations of a modest 0.5 percent rise in sales volumes on the previous quarter. Other data includes a monthly consumer sentiment survey.
New Zealand government bond prices were a touch firmer, resulting in yields a tick lower along the curve.
Australian government bond futures were mixed with the yield curve flattening. The three-year bond contract eased 0.01 point to 97.430, pulling away from a nine-month peak of 97.570 touched last week. The 10-year contract added 0.03 point to 96.315.
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